Running On Empty More Americans are playing the game on a record number of new courses. So why has a golf boom turned into a bust for club manufacturers?

In business you can go out with a bang and a whimper. Thewhimper was heard from Lynx Golf last summer when the parkinglots around its Carlsbad, Calif., headquarters emptied for thelast time. The bang--of an auctioneer's gavel--came on Jan. 20when the company's physical assets and fixtures were sold. Theonce ubiquitous advertiser of Boom Boom drivers is no more,lingering, in name only, as a house brand for the Golfsmithchain of retail stores.

A few miles up the road another Titanium Valley plant sits idle.The fate of Founders Club is writ small at a nearby SportsAuthority megastore, where Fresh Metal drivers, once favored byTour players Fred Funk, Lee Janzen and Lanny Wadkins, sell for$9.98--the price of a pizza.

Got a metal detector? Somewhere out there, under a few feet ofwaste in a landfill, is a lode of midsized stainless-steeldrivers and fairway woods. The clubs were buried there by aleading company in the early '90s, when oversized driverssuddenly became the fashion.

To Dick Rugge, product-development manager at Taylor Made, the$10 driver is the most disturbing. "That's unbelievable," hesays. "The club's intrinsic value is worth so much more thanthat." But Rugge explains all three bad outcomes--bankruptcy,bargain bins and burial--in just four words: "We're a fashionindustry."

If Rugge's analogy is correct, 1998 was the year golf companiestried to sell ankle-length skirts to Ally McBeal. Industryleader Callaway saw sales of its Big, Bigger and Biggest BigBertha metal woods decline from 2.7 million units in '97 to 1.9million in '98. Meanwhile, two upstart companies, Adams andOrlimar, stole significant market share with their low-profilefairway woods. Overall, the U.S. equipment industry ended fourconsecutive years of sales growth, dipping an estimated 15% to20% below '97's record volume of $2.5 billion. Black Rock (makerof the Killer Bee driver) and Snake Eyes (a purveyor of wedges)crapped out and joined Lynx as Golfsmith house brands.

"I think we got drunk on the success of the industry," saysSteve Pelisek, sales director for Cobra, another Carlsbad-basedcompany. "But that success wasn't based on the growth of thegame in the U.S. It was built on outside markets and price rises."

In his cluttered office off the warehouse floor at Taylor Made,Rugge illustrates Pelisek's point by drawing a graph on hiswhiteboard. "Our biggest mistake was believing in thestraight-line theory," Rugge says, labeling his horizontal lineYEAR and one vertical line HEAD SIZE IN CCs and a second PRICE."Up until 1991 woods were about 150 cubic centimeters in size."He makes two dots, low on the graph. "All of a sudden they wentup to about 195cc--Big Bertha." Two more dots, slightly higherand to the right. "In '95 they jumped to about 240. Titanium."Rugge marks the graph again, then connects the dots, making twoparallel lines that rise sharply.

"So in '97 we said, 'Hey, this is a nice straight line. Let'skeep going.'" He makes yet another set of dots, this timeopposite 290cc--the size of Biggest Big Bertha and its bulbousclones. "But we got surprised," he says. "There was resistance."

That is, golfers said no, they didn't want clubs that lookedlike Ronald McDonald hand-me-downs, and they certainly didn'twant to pay $500 for one. "So here you have the point ofresistance," Rugge says, marking the unattained goal with an X."Adam Smith had it right. You reach a point where price exceedsperceived value."

No lie. Smith's dictum is visible all over the golf business asit gears up for this week's PGA Merchandise Show in Orlando. Aset of Ram FX oversized irons, formerly $400, sells for $199.99on the Internet. Taylor Made's Ti Bubble2 driver, originallylisted at $425, is 40% off at Edwin Watts. Callaway's Steelheaddriver sells, and sells well, for around $230. ("It's the firsttime Callaway has departed from premium pricing," notes aHouston retailer. "That's an admission it has lost position withthe consumer.") On Wall Street golf stocks are an even betterbargain. Callaway, which traded as high as $38 5/8 in '97, nowgoes begging at about $12. Arnold Palmer Golf and McHenry Metalsbegan the new year at about an eighth of their '98 highs. EvenAdams, despite lusty sales of its Tight Lies fairway woods,dropped from an initial public offering of 16 to as low as 215/16. Says Taylor Made president and CEO George Montgomery,"Nineteen-ninety-eight was a wake-up call." Which invites thequestion: Why was everybody asleep?

Pascal Stolz, Cobra's vice president, thinks he knows why. Hecan even tell you when the industry nodded off: September 1997."That," he says, "is when we all made the decisions that are nowaffecting our lives."

In September '97 the industry was euphoric over an expectedexplosion in the number of golfers. Analysts looked at severalfactors--Tigermania, a growing interest in golf among women, anexpanding Asian market, the aging of the baby boom generation,rich new television contracts for the PGA Tour and burgeoningequipment sales--and concluded that the game was growing. Theanalysts believed that avid core golfers, those who play 25 ormore rounds a year (and pay premium prices for equipment) mightgrow from six million to eight or even 10 million.

It didn't happen. What growth the game enjoyed came at thebeginners' end of the scale, and new players don't buy $500titanium drivers. (The total number of U.S. golfers has climbed6%, to 26.5 million, in the '90s.) Exports to depression-wrackedAsia dried up completely.

Instead of growth, the club makers confronted stasis. "We're inthe replacement business," says Pelisek. "We're not the computeror cell phone industries, which have a lot of new customers."Typically, core golfers buy new clubs every four years. But ifthey aren't excited by something new, they might wait for yearfive. "That's a 20% downturn in business," he says, citing anumber that matches last year's slide. "In '98 we didn't giveour customers very good value, so they didn't replace."

Looked at another way, the technological innovations of the'90s--oversized heads, fat shafts and titanium--may havemotivated golfers to replace their clubs prematurely, creatingthe illusion of growth. U.S. companies have sold roughly sixmillion titanium drivers, or about one for every avid golfer.Says Montgomery, "I see saturation of titanium drivers."

The underlying flatness of the club market is masked byunprecedented volatility in market share. In '97 Callawaycontrolled an estimated 36% of the metal-wood business; lastyear its share shrank to 30%. Adams and Orlimar, nowhere on theradar as recently as '97, combined for a 16% share of fairwaywood sales by the end of '98.

What looks like consumer fickleness is actually a predictableconsequence of a fundamental shift in how clubs are sold. Untilthe mid-'80s equipment companies marketed most of their clubs tothe trade--that is, to club pros in on-course pro shops. In the'90s Callaway led the shift to consumer marketing, floodingtelevision and print media with pitches aimed directly atgolfers. A parallel shift of business from club pro shops tochain retailers significantly boosted volume for hot productsbut also eroded brand loyalties. Today, a start-up outfit with agood infomercial can steal market share faster than you can sayOrlimar.

Ely Callaway, the 79-year-old founder and chairman of Callaway,has been the most obvious loser. In '98 he laid off a thousandworkers, pushed out the company's CEO, cast off publishing anddriving range subsidiaries and looked on glumly as his BigBerthas gathered dust on showroom floors. Meanwhile, theindustry clucks over Callaway's biggest gamble: a gargantuangolf ball factory nearing completion just up the road fromcompany headquarters. Industry sources estimate that Callawaywill have spent as much as $150 million on the plant when itopens later this year, with no assurance that he can takesignificant share from ball leaders Titleist and Spalding.

Competitors, though, are not exactly chortling over Callaway'sdifficulties because the company's unsold inventory oftitanium-headed clubs, estimated at $160 million, threatens towater down the market. "The pipeline is full," worries the floormanager at a Texas golf discounter. "The old clubs just sitthere."

There are several ways to handle excess inventory. In the '80sBridgestone tossed thousands of unwanted clubheads into thePacific. Taylor Made, the company that literally buried itsunfashionable metal woods in the early '90s, took a differentapproach in the mid-'90s, pushing both discounted old andpremium-priced new products on retailers. Some product issnapped up at distress prices by diverters, retailers who buymore than they need and secretly sell the rest to steepdiscounters. Finally, there is barter--trading clubs for TVexposure or catalog space.

Competitors can only guess at Callaway's strategy because ElyCallaway has been uncharacteristically quiet of late. In anarticle written for a trade magazine, he recently ripped thepress for overhyping "a false trend toward shallow-faced metalwoods" and promised that his company would dazzle buyers at thisweek's show with a new oversized titanium driver. (The 263ccGreat Big Bertha Hawk Eye will sell for around $400.)

By refusing to put Bertha on a crash diet, Callaway is bucking atrend bigger than clubhead size--the trend toward shortertrends. Back at his whiteboard, Taylor Made's Rugge points outthat for centuries, before 1979, woods had been made out ofwood. In '79 stainless steel took hold and dominated until '91,12 years. In '91 oversized steel emerged, ruling for four years.In '95 titanium swept the decks and dominated for two years."From infinity to 12, to four, to two," Rugge says, soundinglike a pathologist describing the waning efficacy ofantibiotics. "People are impatient. We barely get one thingassimilated when something else comes along to tempt us."

He didn't say it, but that's the good news. Golfers still wouldrather buy a better game than practice for one. They will bitewhen the club makers produce tastier bait. "Golf is anaspirational game," says Cobra's Pelisek, "and buying newequipment is one of the ways to get better."

These days that's what passes for optimism in Titanium Valley.

COLOR PHOTO: PHOTOGRAPHS BY ROBERT BECK Missing Lynx Even a celebrity ownership group that included Fred Couples failed to save Lynx Golf from extinction. [Lynx catalog cover featuring Fred Couples in empty warehouse]

COLOR PHOTO: PHOTOGRAPHS BY ROBERT BECK Back to basics To shore up his company's stock, Callaway trimmed fat and cut 1,000 jobs. [Ely Callaway holding blueprints in factory]

What looks like consumer fickleness is actually a predictableconsequence of a fundamental shift in how clubs are sold.